Faith-based impact investing integrates religious beliefs with impact investing strategies to achieve both financial returns and positive social outcomes. It allows religious groups and individuals to align investments with faith-based principles. Key focus areas are improving livelihoods of disadvantaged groups, supporting ethical practices, and addressing environmental issues. Faith-based impact investors seek moderate financial returns while prioritizing social impact aligned with religious values. This approach is gaining interest given increased awareness of responsible investment practices.
Faith-based exclusion principles for investment screening
Faith-based impact investors often apply exclusion criteria to avoid industries perceived as unethical by religious standards, such as gambling, weapons, tobacco, alcohol etc. Specific exclusion principles vary across religions. For Christianity, common exclusions are abortion, pornography, embryo research companies etc. Islamic investing prohibits interest-based financial services and investments related to pork, alcohol, gambling etc. An interfaith collaborative approach is also adopted by some investors, integrating common religious exclusion principles alongside positive ESG screening.
Target areas and instruments for faith-based impact investment
Faith-based impact investments are targeted to improve socioeconomic outcomes for disadvantaged groups and environmental sustainability. Focus sectors include affordable housing, healthcare, education, clean energy access etc. Preferred instruments are private debt and equity. For example, Christian impact funds provide capital to ethical SMEs, microfinance institutions, social enterprises etc. Islamic funds also promote access to Sharia-compliant financing. Green sukuk bonds fund climate-friendly projects. Shareholder advocacy engages investee firms to improve ESG conduct aligned with faith values.
Financial performance of faith-based impact investing
Evidence on financial returns of faith-based impact investing is limited but indicates market-rate or slightly below-market returns potential. For instance, under the Catholic Impact Investing Collaborative administered by the Vatican, a private equity climate fund targeting 5-8% returns was launched recently. Though financial return expectations vary across different groups, moderate risk-adjusted returns allowing for portfolio diversification are commonly expected by faith investors rather than maximized profitability alone.
Faith-based impact investing integrates religious principles with achieving positive social and environmental impact alongside financial returns, catering to growing investor demand for responsible investment practices aligned with personal values. Though return expectations are modest, faith-based impact capital can contribute significantly to addressing pressing global issues.